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a decision is too intimately concerned with the property and progress of a business and dependent upon too many varying factors to be a proper basis for administrative judgment. The vagueness of the current rule is illustrated by these words of the court in U.S. ex rel Maine Potato Growers Assoc. v. Interstate Commerce Commission (88 F. (20) 780, cert. den. 300 U. S. 684):

Putting aside all questions of relative importance of the various elements of ratemaking—because the controlling facts in each case necessarily varytbere can be no doubt that in prescribing reasonable rates the Commission is required to take into consideration, among other factors, first, the effect of the rate on the movement of traffic; second, public need of adequate lowcost service; third, the carrier's need of sufficient revenue to enable it to give such service. This, as we think, is the clear mandate of the statute. But the Feight to be given to these several factors is left to the discretion of the Commission, as is also the weight to be given the other and unnamed factors which of necessity vary in substance according to the facts.

To allow an administrative agency to substitute its judgment for that of carrier management under such vague and inconclusive standards can only serve to inhibit the operation of competitive forces. Application of this rule of ratemaking has given the Interstate Commerce Commission the burdensome responsibility to exercise judgments usually and necessarily reserved to management. In a notable dissent Commissioner Mahaffie highlighted this problem when he said (Fifteen Percent Case, 1937–38, 226 I. C. C. 40):

The maintenance of an adequate system of transportation by railroads in this country is vastly more important to its shippers than is the exact level of freight rates. It has been strongly urged that in asking these increases, they are foolish because the result of increased rates will be less traffic and less rerenue. Apparently the majority is much impressed by this competition, and by rate reductions, where necessary, to try to hold traffic to the rails. I see Do reason to doubt that the same self-interest that has led to that course of action heretofore will compel its continuance.

In this proceeding the carriers are seeking an opportunity to earn their living. Whether they generally can do so at any level of rates may be open to question. But so long as the country requires and utilizes their services, they should have that chance. The meager increases authorized do not afford it.

The dilemma facing the Commission in the application of the rule of ratemaking was expressed in Passenger Fares and Surcharges (214 I. C. C. 174):

As stated, the eastern respondents are of the view that a reduction in the basic fare would not increase their net revenues, and they urge that if there be doubt about this matter, it is our duty to permit the railroads to exercise the judgment of their executives in maintaining the present fare structure. In the same category is the further contention that we cannot lawfully compel carriers to make rates in order to meet competition. Reference is made to a number of cases in which the courts and the Commission have held that the latter is not the manager of the railroads. We have said a number of times that the law does not contemplate the transfer to us of the duties of the general managers of the railroads. That the law does confer upon us the power to review some of the duties which ordinarily repose in railroad management is beyond question, for the making of rates is such a duty. Just where such duties which are reviewable by us end and those which are not so reviewable begin has never been clearly defined, perhaps is impossible to specific definition, and must depend upon the particular circumstances as they arise. In Ex-Lake Iron Ore from Chicago to Granite City (123 I.C.C. 503), and subsequent cases, we took the position that under section 15a we have the power to condemn a proposed rate where it appears that it wll result in loss rather than gain to the carriers in such degree *as to be a menace to the steady and efficient service called for by the statute" (United States v. Chicago, M., St., P. & P. R. Co., 294 U. S. 499; Gasoline from San Francisco Bay Points to Ogden, Utah, 198 1. O. C. 683). The new section 15a imposes upon us the same ultimate responsibilities as did the old (Emergency Freight Charges, 1935, supra, p. 26). In Florida v. United States (292 U. S. 1), the Supreme Court had this to say with respect to th new 15a :

“The new act discloses no intention to weaken national control for essentia national purposes over the railway system of the country. It was rather designet to aid that control in the light of the depressed economic conditions of the rail ways."

Thus, if we have the power to set aside managerial discretion where the latter seeks to impose an undue burden upon carriers generally by an unwarranted re duction in rates, we must have the same power where it is sought to effect 1 like result by maintaining an unwarrantedly high level of rates. The sam principle is applicable to both. This does not mean that the act does not leavi the carriers "free to make special rates looking to the increase of their business (Interstate Commerce Commission v. Chicago G. W. Ry. Co., (209 U. C. 108 119), but it does mean that where, in our judgment, rates or fares have becom a menace to the accomplishment of the aim sought by the statute, namely, “th need in the public interest, of adequate and effi ent railway transportatioi service at the lowest cost consistent with the furnishing of such service," we hav the power, and it is our duty, to intervene.

We believe that carrier self-interest tempered by the dictates o competitive enterprise is capable of producing a sounder rate struc ture than that which can be imposed by a regulatory agency require to exercise judgments in areas normally reserved to managerial dis cretion. We recognize the need for restraint to avoid discriminator, practices, such as below cost pricing.

It should be noted that there is no intention to deny the Commissio the freedom to consider any factors now specifically required to b taken into consideration by the rule of ratemaking, save for thos specifically barred by the new section 15a. It would seem clear tha repeal of the rule, which is in the nature of a declaratory statuto simply removes the requirement that they be considered but does no prohibit the consideration of these or any other pertinent factors un less expressly barred.

The new standards as set out in section 8 of H. R. 6141 and 614 have as principal purposes, to assure that dynamic competition wi. have a basic role in the determination of rates as between competin transportation enterprises and that the ICC shall be relieved of it function of regulating rates so as to coordinate competition betwee various transport media. Thus under proposed section 15a (1), th ICC shall not be permitted to disturb competitive rates for considera tions growing out of:

** the effect of such charge on the traffic to any other mode of transporti tion; or the relation of such charge to the charge of any other mode of transpo tation; or whether such charge is lower than necessary to meet the competitic of any other mode of transportation.

Under existing regulatory criteria, regulated carriers have bee prevented from putting into effect compensatory rates because of th effect such rates might have upon competing media. We believe th to be an unsound regulatory practice which results in inhibiting th movement of traffic by the most economical form of transport avai able. Such artificial barriers are economically unsound and lead 1 higher cost to the shipper. The consumer and shipper benefit mo when traffic is allowed to move by the most efficient and lowest co medium. This is not possible where rates are kept high because the effect which lower rates might, in the opinion of the regulator agency, have upon competing media. In proposing this change we. are again mindful of the dissenting opinion of Judge Fee in Scandrett v. United States (32 Fed. Supp. 995), previously cited. Judge Fee's remarks bear repeating in this connection.

The Interstate Commerce Commission have in this case departed from the traditional role of conservators of the interests of the public at large, by refusing to permit rail carriers to reduce rates on petroleum products from Portland, Oreg., to the area near Spokane, Wash., even though the Commission found such proposed rates were "compensatory considering all costs." Thereby, the Commission not only interfered with the managerial discretion of the rail carriers, but also frustrated a fundamental policy established by the Congress that the lowest rates should prevail where consistent with the proper service.

We believe that enactment of this section will go a long way in restoring the principle that in the absence of discrimination, the lowest rates should prevail where consistent with proper service.

Some question has been raised to this recommendation upon the ground that competitive ratemaking, if permitted, would result in higher rates upon noncompetitive traffic. We do not believe this will be the case. In proposed section 15a, paragraph (2), the Commission is directed to:

take into consideration the extent and effect of competition with respect to the service to which the charges apply to the end that carriers will be preFented from imposing excessive or unreasonable charges on traffic which is noncompetitive.

The new section 15a also provides that just and reasonable maximum charges shall not be reduced below “the full cost of performing the services to which they apply exclusive of losses in other services. This provision is intended to protect the carriers against being required to perform services at a rate less than the costs applicable to the service to be performed. This would avoid situations such as that in Baltimore dte Ohio Railroad v. United States (345 U. S. 146). In that case the Supreme Court upheld an ICC rate order, even though the rates were fixed at levels below cost. In a dissenting opinion in that case, it was said: Can a confiscatory rate be a "reasonable" rate under the statutory and constitutional system within which the Commission operates? It is incredible to me that Congress used "reasonable" in such an odd and unsual sense. We

agree and accordingly recommend this revision of the act to remove any doubt on this score.

Section 15a (3) as proposed would give legislative recognition to the actual fact that differences do exist as between various modes of transportation. This provision would extend to other forms of transportation the same rule now applied in section 305 (c) to water carriers alone. Enactment of this provision would equalize the regulatory relationship as between various modes of transportation to the end that advantages inherent to the particular modes of transport are not blocked by regulatory inhibitions.


Section 4 of the bill implements the recommendation of the Advisory Committee report relating to long- and short-haul rate adjustments by removing the procedural requirement that

rail or water common carriers obtain prior approval * for charging less for longer than for shorter distances over the same line or route in the came direction, the shorter being included in the longer, if necessary to meet actual competition and the charge is not less than a minimum reasonable rate.

While continuing the prohibition of violations of the long- and short-haul clause, the amendment would discontinue the requirement for licensing of such departures when they were “necessary to meet actual competition” and were “not less than a just and reasonable minimum charge.” These provisos were incorporated into the amendment to preclude any doubt that the new section 4 could be so applied as to weaken and circumvent the other regulatory provisions of the Interstate Commerce Act. While the amendment does eliminate the special licensing requirement for section 4 departures, it is in no way intended to accord such rates any privileged treatment as to the actual determination of their lawfulness by the Commission.

Section 4 as presently constituted interferes with the freedom of railroads and water common carriers to fix competitive rates. Motor common carriers are not subject to the long- and short-haul prohibition. With the exception of instances where a departure from the long- and short-haul prohibition of section 4 is involved, the railroads and water carriers under the law have the duty and right to initiate, publish, and file reasonable rates with the Interstate Commerce Commission without first obtaining its consent. There is no valid reason why this should not be done in every instance. Under the present long- and short-haul clause much time, effort, expense, and delay are involved in makingg an application to the Commission for permission to file a tariff. The purpose of the amendment is to relieve the rail and water carriers of this burdensome procedure in the presence of competition.

Section 4 now provides :

It shall be unlawful * * * to charge any greater compensation in the aggre gate * * * for a shorter than for a longer distance over the same line or route in the same direction, the shorter being included within the longer distance *

The section also provides that rail and water carriers can apply to the Commission for relief from these prohibitions and authorizes the Commission to license long- and short-haul departures "in special cases” provided that the proposed rate is “reasonably compensatory for the service performed and the relief is not sought “on account of merely potential water competition not actually in existence.”

The justification for continuing the special licensing procedure presently required for long- and short-haul adjustments in competitive situations is questionable, for thhe Commission issued only 77 denial orders in response to the 1,421 applications that were filed for long- and short-haul relief during the year ending October 31, 1955. Of 267 petitions filed for the modification of outstanding orders under the section, only 18 were denied during the same period. Any purported regulatry benefit derived from his special procedure would seem to be diminished by the following stipulation wihch in included in every fourth section order in which relief is granted:

The Commission does not hereby approve any rates filed under this authority all such rates being subject to complaint, investigation, and correction if it conflict with any provision of the Interstate Act. [Italic supplied.]

Here is an example of a competitive situation under the present section:

A motor or a water carrier reduces its rate on a commodity moving berpeen a point A and point B which results in a diversion of traffic from a competing carrier. If the affected carriers decides that it could retain or regain this traffic by a rate reduction, it must-under the present section 4choose between either making other reductions on this same commodity for the points it serves intermediate to A and B, or applying to the Commission for special relief. If the affected carrier chooses the former course he is arbitrarily obliged to curtail his earnings. If the carrier chooses the latter course, it must go through the usual procedure of getting the prior approval of the Commission and, as indicated before, such rates would still be subjected to complaint, investigation, and correction.

Applying the proposed revision to the preceding competitive situation, the affected carrier could set a new rate—“not less than a just and reasonable minimum charge”-to meet competition, but without having to make reductions on the same commodity at the intermediate points between A and B and without obtaining prior approval from the Commission. In other words, rail and water carriers would have the right of initiating long- and short-haul departures by filing with the Commission in exactly the same way as all other rates are filed. The suspension procedure would give competiting carriers, and interested shippers and localities adequate protection prior to application of the rates and section 3 remains unchanged for protection against unjust discrimination. In its 1955 report, the Commission recommended that,

Section 4 (1) be amended so as to eliminate the necessity of securing prior approval of the Commission for the publication of rates over circuitous routes equivalent to the going rates over direct routes when, in the managerial discretion of the carriers, such rates are necessary because of competitive factors.

In its statement of justification for their proposed changes, the Commission said:

The proposed amendment is specifically designed to make the fourth section self-operating with respect to the right of a circuitous route to meet the rate or rates legally established between competitive points over the more direct routes. No further authorization from the Commission would be required other than the standards laid down by other sections of the act. As an incident of this suggested change we are proposing to remove from section 4 the reasonably compensatory provision. This, in our opinion, would eliminate from section 4 all of the unnecessary refinements of the long- and short-haul principle, would terminate our responsibility with respect to fourth-section departures over circuitons routes, and would limit our jurisdiction to authorizations of relief over direct routes, upon application and after investigation, where special justification for such relief is shown.

Experience has demonstrated that the public interest is not being served by the imposition of the restrictions in question, and the history of their administration has proved them to be excessively burdensome to all concerned. Together they bare resulted in disproportionate expenditures of time, labor, and funds by both the carriers and the Commission in comparison with the relatively small benefits derived. Almost all of the dissatisfaction with section 4, which has been espressed periodically by carriers and shippers alike, appears to stem from the same burdensome provisions. [Italic supplied.]

While the Commission recommends that any such amendment regarding departures be limited to those instances involving cricuitous routes, the logical conclusion from its own reasoning, as expressed above, is that any such amendment should apply to all long-and shorthaul situations in furtherance of the public interest.

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